What is Canada’s New Formal Market Study Power?
Under the new Section 10.1 of the Competition Act, a market study is a new form of formal inquiry “into the state of competition in a market or industry if the Commissioner is of the opinion that it is in the public interest to do so.” A market study inquiry can be initiated by the Commissioner in consultation with the Minister of Innovation, Science and Economic Development (Minister), per Section 10.1(1), or can be initiated by the Minister directing the Commissioner to undertake such an inquiry after consultation with the Commissioner as to feasibility and cost, per Section 10.1(2). The six resident complaint mechanism under Section 9, wherein any six Canadian residents who believe someone may have contravened the Competition Act may complain to the Commissioner and require the Commissioner to commence an enforcement inquiry to determine if there are grounds for an order under the Act, is not available for market studies. Only the Commissioner can launch a market study, in one of the two manners described above.
Once the Commissioner and Minister have consulted with each other, or the Minister has directed the Commissioner to conduct an inquiry, Section 10.1(3) requires the Commissioner to prepare proposed terms of reference for the inquiry and to publish them for public comment for at least 15 days prior to finalizing.
This new power is time limited. The Act gives the Commissioner 18 months to complete an inquiry under section 10.1, with the potential to receive extensions of up to three months at a time, at the Minister’s discretion. This time limit, and the statutory requirements to make the terms of reference and the results of the study public, are meant to serve as safeguards against excessively time-consuming or arbitrary studies.
Previously, the Commissioner already had the ability—informally—to conduct market studies but could only do so based on publicly available information, information already in the Competition Bureau’s possession, and information voluntarily provided by market participants. Importantly, information provided voluntarily did not have to be certified under oath. In contrast, the Commissioner can now apply to a court under section 11 of the Competition Act to obtain an order for compelled, or involuntary, information, pursuant to which the market participant must provide information, produce documents or testify, all under oath or affirmation. Court hearings of s.11 applications for compulsory orders are conducted ex parte, or without notice to the responding party. This power to compel information already existed under section 11, but it could only be used in an enforcement context where the Commissioner had reason to believe that grounds existed for a remedial order under the Competition Act. Now, these powers can be used in furtherance of a formal market study, even where the Commissioner has no reason to believe there are grounds for an enforcement order under the Competition Act.
Before the final report is published, the Commissioner must send a draft to any person who provided documents, information, or testimony for the study, allowing three working days for them to provide feedback on factual inaccuracies or confidential information which should not be disclosed in the final report.
Market studies are intended to support the Competition Bureau’s law enforcement work as well as its competition advocacy role more generally by allowing it to identify factors affecting competition and to propose evidence-based recommendations on how to increase competition in a particular sector or industry. According to guidance published by the Competition Bureau, it identifies relevant sectors for study by considering its enforcement experience with different sectors, observations from foreign counterparts’ activities, new federal, provincial, or municipal policies, requests from governments or lawmakers, and input from stakeholders such as the legal and business communities, consumer groups, academia and more. When a sector has been identified for study, the Competition Bureau then conducts research about the size of the sector, its structure, the laws applicable to it, the previous work they have done in the sector, and whether there are market power concerns for that sector. It then analyzes whether it would be in the public interest to conduct a study considering behaviour in the market, the benefits it expects from the study, and the Competition Bureau’s current priorities and resources. Lastly, it circumscribes the scope of a study according to the most important issues that may be affecting competition and consumers, studying only what is within the Competition Bureau’s mandate under the Competition Act.
History of Formal Market Study Powers in Canada
To understand the significance of these amendments, a look back in time is necessary. Although the power to conduct market studies had been included in the Combines Investigation Act, the predecessor legislation to the Competition Act since 1923, the power to conduct market studies (including the power to compel information from market participants) explicitly belonged to the Restrictive Trade Practices Commission (RTPC) from 1952 until 1985. The RTPC conducted several multi-year investigations, often targeting the industries perceived to be “giants,” including inquiries into groceries, sugar, and beer. Most famously, the RTPC conducted an inquiry into the petroleum industry. The process lasted 13 years, from 1973 to 1986, factoring in both the time previously spent by the Competition Bureau on an enforcement inquiry and then the market study conducted by the RTPC, costing the government millions and the industry millions more. Many competition law practitioners and industry advocates considered that, despite the cost and duration, the inquiry provided no real benefits or insights into the petroleum market. The questionable utility of such a costly inquiry contributed, at least in part, to the repeal of the formal market study power. When the Competition Act replaced the Combines Investigation Act in 1985—and the Competition Tribunal replaced the RTPC—market studies were intentionally left out.
Beyond the perceived waste of the petroleum inquiry and other market studies, they were seen by some as an overreach by government. Market participants who had seemingly not contravened the Competition Act perceived that they were subject to a “politically-motivated fishing expedition,” leaving a bad taste in Canadian industry’s mouth.
The idea of re-introducing formal, compulsory, market studies into the Competition Act was nonetheless proposed several times since 1985. Notably, in 2004, the Competition Bureau commissioned an independent study from a non-profit organization called the Public Policy Forum to conduct a public consultation on proposed amendments to the Competition Act which included introducing formal, compulsory, market study powers. In its final report, the Public Policy Forum wrote that most intervenors had concerns about re-introducing market studies, for the same reasons that the power had originally been repealed: burdensome cost and questionable utility.
Market Studies Since 1985
In the meantime, the Commissioner has been able to conduct several market studies over the years, relying on voluntarily provided information and information already in its possession or publicly available. These studies have included, most recently, a 2007 study into the generic drug sector, a 2007 study of self-regulated professions, a 2017 study of financial services, a 2018-2019 study into the broadband industry, a 2021 study into digital health care services and a 2022 study into the grocery sector. However, in the grocery sector market study report, the Competition Bureau alluded to these informal powers being inadequate, writing that “the level of cooperation [by Canada’s major grocery chains] varied significantly, and was not fulsome. In many instances, the Bureau was not able to obtain complete and precise financial data, despite its repeated requests.”
Benefits of a Formal Market Studies Power
Proponents of formal market power studies cite certain benefits in favor of allowing the Competition Bureau to compel the provision of certified information for more than just enforcement actions, given their differing scope and goals.
Market Studies are Forward-looking
By nature, market studies are forward-looking and broader in their scope than enforcement actions. Whereas enforcement inquiries tend to focus on actual or potential harm due to past or present conduct, market studies flexibly look forward. This can help to identify and diagnose emerging issues and explore different drivers and thus, different solutions. This is said to be especially useful in fast changing and complex markets, like the digital economy, especially when there has not been much enforcement experience in those markets.
Market Studies are Broader than Enforcement Actions. Market studies are also more holistic than enforcement actions and can cover a broader range of issues, including where there may be multiple interdependent factors creating competition concerns within a market. Market studies are also market-wide, with a view to dealing with the market as a whole, instead of individual firms. Lastly, the broader scope of market studies allows the Competition Bureau to conduct not only pre-enforcement reviews where they study markets that are not functioning competitively but where no illegal conduct has yet been identified, but also ex-post remedy assessments where they review the impact of their previous enforcement actions or the impact of other regulatory actions and policies on the market.
Market Studies can Facilitate Advocacy. Market studies can also be a method whereby the Competition Bureau can study markets and identify weaknesses in laws and regulations contributing to an industry’s perceived lack of competitiveness. By increasing the Competition Bureau’s knowledge of a specific market, the results of the market study can be used as an advocacy tool to identify proposals for reform and can inform the government about the state of competition in key areas. It allows an understanding for how current legislation may impact industry structure and whether structural, regulatory, or other impediments to competition exist. This increased knowledge of a sector can also serve to assist the Competition Bureau in future investigations or merger reviews.
Safeguards and Guardrails
The new market studies powers in the Competition Act contain certain guardrails to ensure that the power is used efficiently and transparently.
Ministerial Consultation
Market studies cannot be commenced by the Commissioner without consultation with the Minister, or at the Minister’s direction. This Ministerial oversight, advocated by some in the business community, as well as other safeguards are meant to serve as a shield from overly onerous, overly broad market studies.
Terms of Reference. Before any market study, the Commissioner must prepare proposed terms of reference for the inquiry, publish them to the public for comment, and then—taking into account any comments received from the public—must submit to the Minister the final terms of reference for approval. These terms of reference must then be published on a publicly available website, thus serving to ensure a degree of transparency in the process.
Judicial Authorization. The Commissioner cannot issue an order for the compulsion of information, whether for an enforcement or a market study inquiry. Rather, a judge must be satisfied that an inquiry is being conducted under s.10.1 and that a person has or is likely to have information that is relevant to the inquiry in order to compel the person to testify, produce documents, or answer written questions. The need for judicial authorization will thus circumscribe to some extent the type and quantity of the information that can be compelled by the Commissioner for a market study.
Time Limit. The Commissioner must complete a market study inquiry and publish a report of their findings within 18 months of the publication of the final terms of reference. This study period may be extended for periods of up to three months at a time, at the Minister’s discretion.
Draft to Stakeholders for Review. Before the final report is published, the Commissioner must send a full or partial draft to every person who provided testimony, documents, or information pursuant to a compulsory order issued under section 11(1). These persons may, within three working days, provide the Commissioner with their concerns regarding factual inaccuracies or confidential information that should not be disclosed.
Public Report. The Commissioner must publish a report of their findings on a publicly available website.
International Comparison
One of the justifications for the re-introduction of formal market study powers in Canada was that Canada was out of step with its G7 counterparts. The Competition Bureau compared Canada to jurisdictions like the United States, the European Union, the United Kingdom, and Australia.
In the U.S., for example, the Federal Trade Commission has the authority to conduct market studies and to compel persons to provide information under oath. Unlike the new Canadian provisions, there is no set time limit for a market study conducted by the FTC, no requirement to publish terms of reference, and there is no requirement to publish reports, although the FTC can make public portions of the information they obtained if it is in the public interest.
In the European Union, the European Commission may initiate a sector inquiry. Like the U.S., they have no statutory timeline for the completion of such inquiries. The Commission may by simple request or by decision require undertakings to provide all necessary information. The Commission may publish reports but is not required to. Practically, however, the Commission usually produces an interim report then a final report.
In the United Kingdom, there are mechanisms for both market studies and market investigations, with required processes for market studies being broadly similar to those adopted in Canada. Market studies are examinations into why certain markets may not be working well, and they cannot be used to impose remedies without a subsequent investigation. Market investigations are more detailed examinations into whether any feature, or combination of features, of a market in the UK for goods or services prevents, restricts, or distorts competition in connection with the supply or acquisition of any goods or services in the UK and, in contrast to market studies, remedies may be imposed if an adverse effect on competition is found. Both market studies and market investigations are conducted by the Competition and Markets Authority (CMA). Market studies require the publication of a study notice and must be complete within 12 months of the publication of the notice. Market Investigations must be completed within 18 months of the date of reference. The CMA may compel the provision of information for either mechanism and is required to publish a report for both.
In Australia, the Australian Competition and Consumer Commission (ACCC) may also conduct market studies. There is no statutory timeline for these studies and the ACCC does not have any compulsory investigative powers. Finally, there is no requirement to publish a report upon completion of a market study.
Canada’s safeguards most closely resemble the United Kingdom’s, where they have time limits for the completion of both market studies and market investigations and the requirement to publish reports. The other jurisdictions discussed all have fewer statutory safeguards than Canada while Australia sits at the other end of the spectrum, having no formal compulsory market study powers. Although the Canadian government did not explain its reasoning for choosing to implement these safeguards, it would seem that it landed closer to the UK approach in order to prevent perceived abuses of the market study power as in the past, and to give more opportunity for transparency and public participation, while still providing the Commissioner with this tool that Competition Commissioners have requested for some time.
Looking Forward: New Market Study Launched Under Amended Provisions
Since the coming into force of the new formal market study power, the Bureau has already commenced its first market study under the new provisions. Launched on July 29, 2024, the Bureau is examining the state of competition in the airline industry in Canada and has obtained two court orders requiring Air Canada and WestJet Airlines to produce records and answer written questions. The manner in which this power is exercised in the first instance will set a precedent and expectations for the business community going forward. The Competition Bureau is no-doubt aware that the business community is watching to ensure that Bureau resources devoted to market studies do not detract from its enforcement focus, that market studies are not politically motivated, and that they are conducted efficiently with due respect for requests for confidentiality.
Conclusion
While it appears that the Canadian formal market study powers granted to the Commissioner of Competition have been carefully crafted to avoid costly “fishing expeditions,” it remains to be seen whether future governments will be willing to act on Bureau recommendations resulting from market studies. Shortly after the passage of the amendments, Commissioner Matthew Boswell wrote that the Competition Bureau would focus on leveraging the new tools in its toolbox, including promoting competition through market studies, so that all Canadians can benefit from “lower prices, better services, and more choice.” Presumably, formal market studies can help to achieve this goal only if they result in action. Time will tell.
